American credit market outlook

Analysts at Lehman Brothers on Friday recommended Time Warner Inc over Clear Channel Communications Inc in the credit derivatives market.
Lehman analyst Scott Shiffman said in a report he has an overweight recommendation on Time Warner's credit because of the reward it offers, compared with other cable and media companies; its stable fundamentals and "ongoing credit discipline."
The possible resolution of charges related to an investigation into the accounting procedures at Time Warner's online unit add to the favourable outlook, Shiffman said.
But Shiffman gives Clear Channel only a marketweight recommendation, arguing the company has reached an "apex" in terms of credit quality and that its credit spreads do not compensate for potentially more shareholder-aimed actions, like the $1 billion share buyback on March 30.
"Though Clear Channel has an ample free cash flow cushion, we think this announcement marks an inflection point in the credit story," Shiffman wrote.
In the credit default swaps market, both Time Warner and Clear Channel trade around the same levels.
The standard five- year contract for Time Warner trades around 68 basis points, meaning it would cost $68,000 a year to buy $10 million of default protection.
Clear Channel's five-year spread is about 65 basis points. Shiffman recommended selling default protection for Time Warner at 66 basis points and buying the default protection on Clear Channel at the same level - making the carry in the trade flat and duration equal.
Time Warner's credit default swaps appear more attractive than its cash bonds, Shiffman said, because all of those bonds with a five- or 10-year maturity trade at a rich price above par.
Time Warner's LIBOR-asset swap spreads trade close to the cash bond's spreads, meaning its default swap spreads appear cheaper.